Fixed weight aggregates method - fisher''s ideal method, Financial Management

Fixed Weight Aggregates Method

In fixed weight aggregates method, the weights used are neither from base period nor from current period but from a representative period. These weights are generally referred to as representative weights or as fixed weights. These fixed weights are unaffected by the selection of the base period. This is the advantage under this method. The user of the method will be able to select a base year that is convenient to him enabling him to change the price base yet retaining the fixed weights.

The students may refer to the weights assigned to various industry groups constituting the Index of Industrial Production presented in the annexure.

Fisher's Ideal method

Prof. Irving Fisher has proposed a formula for constructing index numbers, which is called the 'Fisher's Ideal Index'. The Ideal index is given by the following formula:

Fisher's Price Index = 160_fisherideal method.png  x 100

As evident from the above formula,

Fisher's Ideal Index is the geometric mean of the Laspeyres and Paasche indices.

The following advantages can be cited in favor of Fisher's Ideal Index:

  1. Theoretically, geometric mean is considered the best average for the construction of index numbers and Fisher's index uses geometric mean.

  2. As already noted, Laspeyres index and Paasche index indicate opposing characteristics and Fisher's index reduces their respective biases. In fact, Fisher's ideal index is free from any bias. This has been amply demonstrated by the time reversal and factor reversal tests.

  3. Both the current year and base year prices and quantities are taken into account by this index.

    Fisher's Ideal Index

    808_fisherideal method1.png

    The index is not widely used owing to the practical limitations of collecting data. Fisher's Ideal Quantity Index can be found out by the formula,

    258_fisherideal method2.png

    x 100
Posted Date: 9/17/2012 2:49:49 AM | Location : United States







Related Discussions:- Fixed weight aggregates method - fisher''s ideal method, Assignment Help, Ask Question on Fixed weight aggregates method - fisher''s ideal method, Get Answer, Expert's Help, Fixed weight aggregates method - fisher''s ideal method Discussions

Write discussion on Fixed weight aggregates method - fisher''s ideal method
Your posts are moderated
Related Questions
Q. Explain Financial Management in brief? In the management of business firms, there are various well known functional areas such as Production Management, Materials Management

Entity A is significantly smaller than B in terms of revenue and would not impact LOP's revenue to the same extent. However A earns a noticeably better gross profit margin at 26% a

A/A2 is generally the second- or third-highest rating that a rating agency gives to a security or carrier. This rating indicates that there is a comparatively low risk of default a

WORKING CAPITAL MANAGEMENT Working capital relates to the capital required for daily operations of a business enterprise.  The requirement for Working Capital is omnipresent fo

What are the main flaws of the profit maximisation criterion The main technical flaws of this criterion are i) ambiguity, ii) quality of benefits and iii) timing of be

What is a financial ratio? A financial ratio is a number that convey the value of one financial variable relative to another.  Put more easily, a financial ratio is the final

Optimal Portfolio Selection: The next step involves selecting the optimal portfolio. The strategic asset allocation will have overriding importance in pension fund management.

Explain why warrants are rarely exercised unless the time to maturity is small? Warrants are seldom exercised till the time to expiration is small because the market price of the

A Video Rental store has two employees. The Supervisor is paid $2,200 per month. The other employee, Mark is paid $1,200 per month. In addition, Mark is paid a commission of 20 cen

What is Institutional Finance A nation's economic structure comprise a number offinancial institutions, like banks, pension funds, insurance companies, creditunions. These i